For Warren, CFPB Post Could Cut Both Ways

Tapping Elizabeth Warren as a top administration official charged with setting up the new consumer protection bureau will help her avoid a tough confirmation battle, but may offer as many risks as rewards.

On the one hand, Warren can take power immediately to get the Consumer Financial Protection Bureau on its feet, outlining the scope of its authority and prioritizing its agenda for at least the next year.

On the other, as a direct administration official, Warren will not be seen as the independent voice lawmakers intended when they created the bureau in the regulatory reform law, potentially undercutting her and her agency's credibility.

"Regardless of the merits whether you like Elizabeth Warren or you are an opponent of Elizabeth Warren, it's hard to see how this is a very satisfactory result," said Oliver Ireland, a partner at Morrison & Foerster LLP.

President Obama is expected to announce Friday that he will appoint Warren as an assistant to the president and special adviser to Treasury Secretary Tim Geithner in charge of setting up the CFPB. It remains unclear whether Obama will also formally nominate Warren as the permanent director of the agency as well, or if he will put off making a decision on that until next year.

Politically, the benefits of a White House/Treasury staff position are obvious. For one, she does not yet have to submit herself to a lengthy, and likely brutal, confirmation process, where her nomination would be certain to draw objections from Republicans.

Instead, she can immediately take charge of the CFPB's formation, drawing on the Treasury's resources.

Notably, even though the Treasury is in charge of setting up the CFPB, Warren's additional title as a White House "assistant to the president" elevates her status. While consumer groups may have been concerned if she answered only to Geithner, a direct line to Obama implies she would have a way to go over the Treasury chief's head if they clashed over a policy decision. "She has a lot of political capital on her own," said Brian Gardner, a political analyst for KBW Inc.'s Keefe, Bruyette & Woods Inc. "She has a lot of allies on the Hill and in constituencies close to the White House. I think anybody who thinks that Geithner is going to try and contain her, keep her boxed up, diminish her role, is going to be disappointed."

Many observers said the role essentially makes her the de facto director of CFPB, even if she does not have the title.

"She will have considerable influence on the formation of the bureau and the policies it will set," said Robert Cook, a partner at Hudson Cook LLP. "I think she will make recommendations, and Geithner will follow them. I think it's fair to say she will have close to the same authority in her proposed position as she would as director. What she won't have is a guaranteed five-year term."

In the first year, the CFPB must publish a rule outlining its authority, hire staff, write new mortgage disclosure rules and implement new mortgage underwriting standards. (The Treasury, which has hired roughly two dozen employees to work for the CFPB already, is due to hold a meeting Tuesday on mortgage disclosures. Warren is expected to attend.)

Consumer groups, which have been pressing the White House for a Warren nomination or appointment, were thrilled with the news, even if a bit cautious about how much leeway the Harvard professor will have in the job.

"The Senate confirmation process is very slow, and based on how the Senate has handled far less controversial nominees, it would take a long time to get someone confirmed, and for the sake of consumers, we can't wait for someone to be confirmed in a year or two," said Travis Plunkett, legislative director of the Consumer Federation of America. "The key question is whether Elizabeth Warren will be given the running room by the president and the Treasury secretary to make important decisions about the agency and its priorities. In the absence of a confirmed director, somebody should."

Indeed, one of the critical drawbacks to the president's plan is Warren's lack of official independence. Whatever Obama says on Friday, a CFPB director would have total separation from the administration once he or she was in place. An administration appointment would not.

Some suggested that the lack of independence could be a mortal blow to Warren and the new agency, undercutting it before it is even fully formed. "This is a sorry state of affairs," said Ireland. "The bureau was contemplated as an independent agency not subject to policy direction. It was set up as an independent agency. This isn't an independent agency. The person setting it up is responsive to the president and Geithner. … This isn't what Congress voted for."

How lawmakers react to Warren will also be critical. Senate Banking Committee Chairman Chris Dodd echoed Republicans this week by suggesting any kind of interim appointment to the CFPB would not work, likening it to a recess appointment. "You are abusing the process, and I think it's a mistake — I don't care who the nominee is," he told reporters.

How long Warren can stay in the administration position is also unclear, and likely hinges on whether she is formally nominated or not. Under the Dodd-Frank law, the Treasury secretary is authorized to perform the functions of the CFPB director until one is confirmed. The Treasury may provide administrative services until the CFPB transfer date. The president has until Sunday to set that date, but he could clarify it as early as Friday.

It's unclear how Warren's role will play into this, and she could potentially serve in the position for the foreseeable future.

"I would assume being an appointee of the president, she serves at the pleasure of the president," said Richard Hunt, the president of the Consumer Bankers Association, who objected to going around the Senate confirmation process. "Anyone nominated should have to go to the Congress to tell their vision. It's ill-advised. This bill was supposed to be about transparency, and this is not a good first step by the administration to show they mean what they say."

If Obama does nominate Warren, it's unclear if her administration role will help or hurt her. It may allow her time to prove herself to skeptical Republicans, but it may also anger GOP lawmakers that they didn't get to vote on her nomination before she served a critical role at the new agency.

"To me, it's hard to see the administration deciding in the near future that there will become a better time to get Elizabeth Warren confirmed," said Gil Schwartz, a partner at Schwartz and Ballen, who noted Republicans are expected to pick up seats in the coming election. "If they don't think she could get confirmed today, I don't know why anyone would think they would have a better chance after the election."

This story has been reprinted with permission from American Banker.

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